National Bank of Canada

TSX:NA

Earnings Call Transcript 2021-Q1

[Operator]

Good afternoon, ladies and gentlemen, and welcome to the National Bank of Canada's First Quarter Results Conference Call.I would now like to turn the meeting over to Ms. Linda Boulanger, Senior Vice President of Investor Relations. Please go ahead, Ms. Boulanger.

[Linda Boulanger, Senior Vice President of Investor Relations]

Thank you, operator. Good afternoon, everyone, and welcome to National Bank's first quarter presentation. Presenting this afternoon are Louis Vachon, President and CEO; Bill Bonnell, Chief Risk Officer; and Ghislain Parent, Chief Financial Officer.Following our presentation, we will open the call for questions. Also joining us for the Q&A session are Laurent Ferreira, Chief Operating Officer of the bank since February 1; Stephane Achard and Lucie Blanchet, Co-Heads of P&C Banking; Martin Gagnon, Head of Wealth Management; Denis Girouard, Head of Financial Markets; and Jean Dagenais, Senior VP, Finance.Before we begin, I refer you to Slide 2 of our presentation providing National Bank's caution regarding forward-looking statements.With that, let me now turn the call over to Louis Vachon.

[Louis Vachon, President, CEO & Director]

[Foreign Language] Linda, and thank you, everyone, for joining us. Today, the bank reported strong first quarter results with a pretax pre-provision earnings up 18% from last year. I am very satisfied with our performance, which was driven by excellent momentum in all our business lines.We generated strong organic growth and an industry-leading ROE, while maintaining high capital levels and prudent reserves. This speaks to our franchise ability to adapt and the sound diversification of our earnings. While uncertainty remains on the exact path and timing of a full recovery, the economy is adapting to a new reality and creating an environment conducive to revenue growth.With more people working from home, coupled with historically low interest rates, we continue to see significant pent-up demand in the housing market. Furthermore, consumers are spending less, saving more and investing more. Finally, markets are very strong, stimulated by monetary policies and new technological and financial innovations.Looking at our home province, we remain optimistic about the economic recovery. The provincial government is in a solid fiscal position. Quebec went into its -- the lockdown with the lowest unemployment rate in Canada, and the Quebec consumer has lower indebtedness and higher savings than the Canadian average. Major sectors of the economy have adapted, so we expect the negative impacts of the current lockdown to be significantly more contained than last spring. Following a contraction of 5.2% in 2020, we expect the Quebec economy to rebound by close to 4% in 2021.On credit, we're confident in the quality of our well-diversified loan book and our strong risk management framework. While risks -- some risks remain in the short term, we are prudently provisioned with significant reserves of $1.4 billion, almost double what we had a year ago. Bill will provide further details.In terms of capital deployment, our strategy remains unchanged. Our #1 priority is to maintain strong capital ratios, allowing us to support our clients and generate strong asset growth. We will also look at increasing dividends and share buybacks once restrictions are lifted.Turning now to the performance of our segments for the first quarter. P&C delivered a solid performance with pretax pre-provision earnings up 3% on a year-over-year basis. Our franchise experienced strong growth on both sides of the balance sheet in both retail and commercial. The strategic choices and the investments we have made in -- over time in P&C and our focus on good execution are producing tangible results. Residential mortgages continue to display particularly strong momentum with volumes up 8% year-over-year and 3% quarter-over-quarter. This is more than offsetting new declined activity in the context of government support and economic restrictions.In Commercial Banking, we are experiencing good momentum in both loan and ancillary revenues. As we look ahead, we expect the underlying trends to persist for both businesses. More than ever, we are committed to our advice-first strategy. The current context remains conducive to further our relationships with personalization, digitization and the collaboration between our distribution networks.Wealth Management pretax pre-provision earnings are up 19% on a year-over-year basis, fueled by strong inflows, favorable markets and elevated transaction levels. Furthermore, recent investments in our Direct Brokerage business are paying off as we are experiencing tough tier growth on several fronts, including in the number of trades, new accounts and revenues. We are very pleased with the strategic positioning of our wealth business.Financial Markets continued to perform very well in Q1, with pretax pre-provision earnings up 35% on a year-over-year basis. Sustained investments in talent, technology and products over the years are bearing fruit. All our businesses were well positioned to take advantage of favorable market conditions and delivered strong revenue growth. The consistency of our performance demonstrates the agility and the resiliency of our franchise. For the time being, we continue to see solid momentum for the business as a whole.Our International segment also delivered a very solid quarter. Credigy's revenues were up 58% from last year, driven by solid portfolio performance and a $26 million gain on an opportunistic sale of one portfolio. For 2021, Credigy has a solid pipeline, and the outlook is very positive.ABA Bank's net income was up 39% year-over-year driven by strong growth in loans and deposits. We are pleased to announce that ABA was named Best Digital Bank in Cambodia of 2020 by Euromoney, recognizing the excellence of ABA's digital platform for the second year in a row. Our International segment is well positioned to deliver double-digit earnings growth again this year.To wrap up, we had a very strong start to the year, and our momentum from Q1 is carrying over into Q2. Activity in Financial Markets and Wealth Management continue to benefit from supportive market conditions. We are seeing very good momentum in real estate and merger and acquisition, and our international businesses are positioned to continue to deliver strong growth and returns.Fiscal and monetary policies remain very favorable for financial activity and should ensure a pickup in economic activity later in 2021 and 2022. Based on what we are seeing today, and should those trends continue, revenue growth should remain quite positive in the foreseeable future.Given our performance in Q1 and the current outlook, we are well positioned to achieve mid- to high single-digit pretax pre-provision earnings growth for fiscal 2021, and we continue to work towards achieving positive operating leverage over the same period. As the economy adapts and recovers, I am confident that we have the right team, culture and strategies in place to generate revenue growth and deliver strong returns for our shareholders.Before I turn over the call over to Bill, I would like to say a few words on Laurent Ferreira's recent appointment as COO of the bank. Laurent is an outstanding leader with a strong track record of driving performance. A 23-year bank veteran, Laurent has been at the heart of building our differentiated Financial Markets franchise and instrumental in the successful executions of the bank's transformation over the past few years. In his new role, he will be providing fresh perspective and strategic leadership to our business segments and operations. So from the whole team, I would like to congratulate Laurent, once again, on this well-deserved appointment.With that, I will now turn the call over to Bill.

[William Bonnell]

[Foreign Language] Louis, and good afternoon, everyone. I'll begin my remarks on Slide 7. Total provision for credit losses were $81 million or 19 basis points in the first quarter, reflecting ongoing strong performance across our loan portfolios and our resilient business mix.Provisions on impaired loans declined to $75 million or 17 basis points, 5 basis points lower than last quarter. The primary driver of the decline was the cyclical low level of provisions in retail portfolios. Within the retail portfolios, RESL benefited from a strong housing market and saw further improvements in delinquencies. In credit cards, early-stage delinquencies saw a moderate increase from last quarter, but remained well below pre-pandemic levels.Commercial and corporate provisions were stable quarter-over-quarter, and performance remained very strong in our International segment. Provisions on performing loans also declined in the quarter to $6 million or 2 basis points. There was a small reversal in retail provisions, reflecting the ongoing strong performance in RESL and the update to our macroeconomic scenarios. Strong loan growth and the IFRS 9 updates drove the performing provisions in our non-retail and international portfolios.Looking ahead, we maintain our total PCL target range of 25 to 35 basis points for the full fiscal year of 2021. Given the good performance we're seeing in the portfolios, we expect to end up closer to the bottom end of that range. As we mentioned last quarter, this target range did not assume a material reversal from performing allowances due to significant improvements in macro scenarios. Since I expect that you may have questions about the potential timing of reversals, I'll share with you our current thinking on both performing allowances and on what may be ahead for impaired provisions.First, performing allowances should be expected to decline over time due both to -- due to both migration and when there are improvements in our forward-looking macro scenarios. We recognize that in recent months, there has been encouraging progress regarding vaccines and success and measures to combat the spread of the virus. In addition, borrowers have excess capital from receptive capital markets and from ongoing support programs.However, we also recognize that large parts of the country are still subject to stringent COVID restrictions, and significant uncertainty remains in the path of the recovery. We felt it was appropriate to maintain our prudent level of performing allowances given these uncertainties, and we will continue to reassess the situation each quarter.Regarding impaired provisions, we continue to believe that they will increase over time. Retail impaired provisions should rise from these very low levels, particularly in credit cards when utilization rates increase and fiscal support is reduced. Non-retail impaireds will likely be concentrated in the COVID-impacted sectors and could be lumpy from quarter-to-quarter.However, the time line for increases in impaireds may stretch out longer than we had initially thought and could extend past the second half of this year. Also, we think that the size of cumulative losses over this period may be lower than what we initially thought, particularly given our underweight exposure in cards and our limited exposure in COVID-impacted sectors.On Slide 8, we provide details of our allowances for credit losses. In the first quarter, total ACLs increased slightly to almost $1.4 billion, up 76% from last year. Nonperforming allowances increased to $357 million, and now represents 47% of gross impaired loans. Performing allowances were stable at just over $1 billion.As you can see on Slide 9, performing allowances comfortably cover 3x our last 12 months impaired PCLs and total allowances cover 5.9x the last 12 months net charge-offs. We remain very comfortable with the prudent level of our allowances that we built up over the past year.Turning to Slide 10. Gross impaired loans decreased across all segments to $757 million or 45 basis points. New formations were concentrated in commercial due primarily to 2 accounts in the oil and gas production sector. This sector was hard hit during 2020, but has seen significant improvements in energy prices and capital markets activities this year. Retail formations declined meaningfully, primarily due to strong performance in the RESL portfolio, and most other sectors had net negative formations in the quarter.Turning to Slide 11. The distribution of our RESL portfolio remains stable, with 54% of the portfolio located in Quebec and 37% of the portfolio being insured. Uninsured mortgages and HELOC for condos represent 7.6% of the total portfolio and have an average LTV of 59%. In the appendices, you'll find additional information on the loan portfolios and market risks.On that, I'll turn it over to Ghislain.

[Ghislain Parent, CFO & Executive VP of Finance]

Thank you, Bill, and good afternoon, everyone. Turning to Page 13. The bank delivered a strong performance in the first quarter, further highlighting the sound diversification of our business mix. With revenues up 13% year-over-year and a solid operating leverage of 4%, the bank delivered strong pretax pre-provision growth of 18%.As always, we maintain our disciplined approach to cost management. We attained an efficiency ratio of 51.7% in the first quarter, our best showing on record. Higher expenses compared to last year reflect higher variable compensation, giving strong revenue growth, larger business volumes and higher investments in brand and technology. While uncertainty remains, we are seeing positive momentum continuing into Q2 in all of our businesses. We are committed to achieving good revenue growth and are implementing initiatives to support this objective.Our investments are primarily focused on providing our clients with the best experience, supporting new business initiatives and simplifying our systems and processes. As Louis mentioned earlier, given our performance in the first quarter and the momentum we are seeing, we believe we can deliver mid- to high single-digit pretax pre-provision growth for fiscal 2021 and potentially achieve positive operating leverage over the same period.Now turning to Page 14, on capital. We ended the first quarter with a strong CET1 ratio of 11.9%, up 12 basis points from last quarter. During the quarter, we delivered an excellent net income generation of 51 basis points, resulting from strong performance in all business segments. We reinvested our excellent net income generation into organic client-driven growth. Risk-weighted asset expansion of 41 basis points essentially came from strong organic growth in our businesses.The main drivers included higher volumes in Commercial franchise; continued growth in Financial Markets, including increased authorization in Corporate Banking and client activity in global markets; as well as loan growth at ABA Bank. The impact from credit migration was limited this quarter. Continued improvement from retail credit scores were offset by re-rating of wholesale borrowers in COVID-impacted industries, including oil and gas. For fiscal 2021, the regulatory scaler for ECL relief decreased from 70% to 50%. The change subtracted 7 basis points from our CET1 ratio in the first quarter.Looking forward, we expect our CET1 ratio to continue to creep higher as our strong internal capital generation supports both good organic business growth and the ability to return capital to shareholders when restrictions are eventually lifted. In addition, we are very confident that our strong capital levels, combined with our prudent level of credit reserves, provide good resiliency in these uncertain times.Now turning to Page 15. Our liquidity -- our LCR continues to be strong at 154%, and we are introducing our net stable funding ratio at 124%. In addition, our total capital ratio remained stable at 16% at the end of the first quarter.In conclusion, the bank had a strong start to the year with solid organic growth, high capital levels and industry-leading ROE. With a strong balance sheet, significant reserves and diversified revenue growth levers, our franchise is well positioned to continue generating attractive growth through fiscal 2021.With that, I'll turn the call back to the operator for the Q&A.

[Operator]

[Operator Instructions] Our first question is from Sohrab Movahedi from BMO Capital Markets.

[Sohrab Movahedi, Analyst]

Laurent, congratulations on your appointment. Louis, question for you. Over the recent quarters, especially, pre-pandemic and then throughout the pandemic, I think you have told us that you have been incredibly selective in growth pre-pandemic. And I think as recently as the last couple of quarters, you'd indicated that you are aggressively in pursuit of top line growth.And I guess what I'm trying to get a feel for is, if you had to, on a scale of 1 to 10, give us a feel for how much of your aspired growth is actually being realized right now as far as still undercome? That would be helpful. Let me know if that actually makes sense, the question. I'm just trying to get a sense for whether or not what we're seeing here this quarter is as good as it gets? Or do you expect this is just the beginning?

[Louis Vachon, President, CEO & Director]

Thanks for the question, Sohrab. Yes -- and it's -- the question did make sense. A couple of things. One, I've discussed that in the past. So I think we've been selective in the areas where we want to grow. This is not 2009, this is not 2010 when we had a risk on strategy in almost every single business lines and in every single asset classes.Indeed, in 2021 and 2022, I think you'll need to be much more selective in terms of risk allocation than we were in 2009, 2010 because the financial crisis of '08 had created a lot of forced liquidations. And that resulted in very attractive risk returns opportunities right across the different business lines.The massive amount of quantitative easing and government support have shielded, I think, the markets from the same level of forced liquidation that we saw in '08, '09. And it's not just in capital markets, it's the same thing also in the lending market. So we are seeing opportunities. And we're taking advantage of those opportunities, but we remain still pretty -- we do need to be we think -- to remain selective in this market.So when we say we can -- we see growth for -- opportunities for growth, we do see them. And I think it's -- I don't think it's the end of the cycle. I think a good scenario, which is, I think, right now, a probable scenario, Sohrab, is that, as I mentioned in my opening remarks, we could see a period of time where because of very active and very expansionary, monetary and fiscal policy, we could see financial activity, namely the activity related to Financial Markets, Wealth Management and real estate remained quite active for a period of time.And at the same time, eventually, the economy will make -- the GDP level will have completely recovered from the COVID crisis. And then we'll see a real pickup in economic activity, which should benefit credit cards, small business loans and other type of activity. And if we have that sweet spot of high level of financial activity, combined with an economic recovery, I think it should be a very good environment to generate revenue growth.That being said, as I said, there are some distortions right now in the market caused by quantitative easing, and there's also some pockets of irrational exuberance. And so you do need to navigate from a risk management perspective. I think Bill and his team and the business lines will remain very, very busy.So in short, I think, yes, this is not -- I don't think that Q1 was a fluke. I certainly hope not. I don't think so. I think we are quite clear in our opening remarks that all the favorable trends that we observed in Q1 are still present with us at Q2. And so for us, going forward, I think we'll -- there'll be -- we'll continue to grow the business, but we'll keep an eye open on risk management. That's for sure. Did I answer your question, Sohrab?

[Sohrab Movahedi, Analyst]

I think you did. And just for crystal clarity, what you did in this quarter, while you're talking about, for example, for the balance of year when Ghislain is talking about mid-single-digit pretax pre-provision growth and the like, this is all still within the context of being prudent on the businesses that you're pursuing, or basically, as you put it, not being in a risk-on environment? Like in other words, once we get into a bit of a risk-on environment that would be, I guess, additional fuel. Is that the right way to think about it?

[Louis Vachon, President, CEO & Director]

Yes. I think it's prudent. As you know, when we give guidance, we like to be prudent. And I think the way we manage risk also historically has been prudent. So I think your assessment is the correct one.

[Sohrab Movahedi, Analyst]

I just hope one of these days, Louis, when you have results like this, you don't say you're satisfied, you say you're ecstatic.

[Louis Vachon, President, CEO & Director]

Yes. We're bankers, Sohrab. Ecstasy is not a -- is a -- we need to be careful of that.

[Operator]

The following question is from Meny Grauman from Scotiabank.

[Meny Grauman]

And I'll start off also by congratulating Laurent. The question is, I think, for Bill, you talked about the time line on the evolution of impairments being delayed. I'm just wondering if you could go into more detail, what's driving that delay in your mind?

[William Bonnell]

Thanks for the question, Meny. Yes, I think the comments I made were just to give you an indication that what's changed from last quarter to this quarter. And I think last quarter, we spoke about expectations for impaireds to gradually grow through the year, and probably Q3, Q4 would see a peak.Certainly, the performance this quarter is -- in many of the portfolios were better than last quarter. You saw impairments down. You saw the -- we weren't surprised by the performing allowances being down. But just given the slower starts to the increase, it's natural thinking that it could be delayed. We also made a comment that it's less certain about the size. So the handoff, as Louis mentioned, from financial activity, the economic activity, nothing is certain in this world. And during a pandemic, uncertainties are higher, but it looks like the -- there's a chance that the overall cumulative losses may end up being lower in this cycle than we would have thought 3 or 6 months ago. Does that answer your question, Meny?

[Meny Grauman]

Yes. I mean I think that's what I was getting at in terms of when we see the delay that we're seeing now, I guess, a prudent way to look at it is to say, okay, let's be careful and think it's still coming. But the question is really, could we just have been totally wrong in this front? And given all the government support and all the things that we're seeing on the ground, could it just be that the kind of impairments that -- basically, we will not see the kind of impairments that we thought we would see. So just curious on that idea that this could just be -- the kind of allowances that you have just could be significantly over and above what will actually be needed when all is said and done.

[William Bonnell]

Well, the -- I think on your last point, I'd say that we're very, very comfortable with our performing allowances. On the first point, I think that's what we mean when we say there are uncertainties. It's hard. We haven't been through this type of scenario. We haven't been through a global pandemic before and to see what the other side of it looks like. So we call it uncertainty. And I would agree, it's -- what it'll end up at is likely to be different than what we would have thought 3, 6 months ago.

[Meny Grauman]

And just on that point, in terms of -- everyone is focused on the vaccination rates, how big a risk factor is that, in your mind, the fact that Canada seems to be behind the curve relative to the U.S., especially. Is this just a matter of timing? Or could it be a more significant risk as we move through the year?

[William Bonnell]

Listen, I think that the -- if we put ourselves back a couple of quarters that we didn't know whether a vaccine would come, we didn't know whether it would be effective, certainly, there's been lots of good news on that and what we know now. It was obvious from the beginning that it's a pretty massive exercise to source and to distribute the vaccine. So there are always going to be a range of uncertainty around that. I think that it's -- what we've seen so far has been positive in terms of the ability to combat this part of the virus and the optimism that there is an end to the tunnel -- light at the end of the tunnel. I don't know, Louis, if you have any other comments?

[Louis Vachon, President, CEO & Director]

No.

[Operator]

The following question is from Paul Holden from CIBC.

[Paul David Holden]

So Louis, on the last conference call, you highlighted a number of reasons why we should be positive on commercial loan growth. And it looks like, sure enough, you delivered some pretty good commercial loan growth this quarter. So one, can you comment on some of the drivers behind the loan growth within the quarter? And then maybe an updated view for fiscal 2021 as well?

[Louis Vachon, President, CEO & Director]

Paul, I'll let my colleague, Stephane Achard, answer. And also, we had a little bit of difficulty hearing you, Paul. So just rectify, we heard your question, but the volume was a little low. Stephane?

[Stephane Achard]

So Paul, although the growth was quite diversified over the last quarter, and if you look at the setback, you'll see that there's been growth in utilities. Obviously, real estate, we took opportunities, and Bill and Louis have mentioned it in their speeches. We took opportunity of the residential market, and the insured portion of our book has grown substantially.But also on the education and health care, our specialties are doing well. So if we look at what we call national accounts, family-owned large businesses, quite a bit of activity there, good growth. And we launched a new initiative last year in Toronto, which is doing really well as well.Specialties outside of Quebec. An important part of the growth was actually outside of the province. So that's looking good. And if we project ourselves in the future, we expect growth in volumes to continue rising up. And by the end of the year, probably revert back to more historical levels. But we still have plenty of opportunities by way of working capital utilization, which is minimal right now in corporates around the country and businesses.So lines of credits will be fully used or returned back to the historical levels, which is more around 36%, 37% of utilization on lines of credit. Right now, we stand between 29% and 30%. So plenty of growth coming from there, we expect. But obviously, that will depend on the progression of the resumptions of the business cycles.

[Operator]

Our following question is from Nigel D'Souza from Veritas Investment Research.

[Nigel R. D'Souza, Investment Analyst]

I wanted to touch on trading net interest income, and I noticed that's still running at a fairly healthy level for you. And I was wondering if you could touch on how the recent volatility we're seeing in yields might impact trading NII going forward and where you see that moving in the short term?

[Laurent Ferreira, Chief Transformation Officer, Executive VP & COO]

It's Laurent. Thank you for your question. Obviously, we've seen elevated volumes, transactions over the quarter. And you're right, volatility was, I would say, at a healthy level, but obviously, nothing like last -- Q2 of last year. And we expect, actually, for this year, volatility to remain at a healthy level.So overall, of course, we benefited from higher volumes in Q1, a trend that we saw in Q4 of 2020, and it continued throughout Q1. So we don't control volumes and volatility, but I feel very confident in our ability to adjust quickly to shifting market conditions. I think we've proven in the past that the franchise is very agile. So yes, you could see revenue -- trading revenues go down, but it's not a concern.

[Nigel R. D'Souza, Investment Analyst]

That's really helpful. And I had another quick question on employees in Canadian banking. I noticed in this quarter, there was a marginal decline there quarter-over-quarter. So just wondering if you could speak to what drove that decline in full-time employees? And if you think that's going to stabilize here? Do you see yourself hiring more people as the economy reopens?

[Louis Vachon, President, CEO & Director]

We're -- Nigel, it's Louis. We remain -- as I said, we remain very disciplined in terms of cost management and headcount management. Especially, we were certainly very prudent in Q1 because we -- there were more uncertainty in terms of vaccination and the path of the recovery and the old sanitary situation. So over time, I think we'll remain disciplined. But I think you should expect that number to grow back up slowly. As we move back into economic activity, we should expect that we'll need a bit more people.

[Operator]

The following question is from Doug Young from Desjardins Capital Markets.

[Doug Young, Diversified Financials and Insurance Analyst]

Starting just with all bank NIMs, and if I exclude trading for National, it was up about 2 basis points year-over-year based on my numbers. That's -- that means the only bank this quarter that we've seen so far is where there's been an increase. And so just curious if you could talk a bit about what might have driven that. I would assume it's the expansion and the growth in Credigy and ABA. And then if you can talk a bit -- maybe if you can provide any color in terms of an outlook for that, that would be helpful.

[Louis Vachon, President, CEO & Director]

Jean, you want to give it a try? Jean is shuffling through his papers right now.

[Jean Dagenais, Senior Vice]

Okay. Well, yes, you had been -- you had a slight decline sequentially for P&C, it's only 1 basis point, but you had also improvement due to volume into Wealth Management and a lot more also in Financial Markets. So the margin is better in Financial Markets than it was in Q4, which we see also in ABA -- improved margin in ABA Financial Market and more revenue, net interest income in Wealth Management.

[Doug Young, Diversified Financials and Insurance Analyst]

Any outlook or maybe you can talk about outlooks for NIMs within like in Canada. It looked like it's been stable sequentially. If there is an outlook for NIMs within USSF&I, any color within Wealth Management, if that would be helpful?

[Jean Dagenais, Senior Vice]

It's more difficult to see in those kind of business. We do expect, what, 1 to 2 basis points lower NIM in P&C Banking. But for the rest, it is more volatile. That's why we follow mainly P&C Banking NIMs.

[Louis Vachon, President, CEO & Director]

Doug, it's Louis. Credigy is a bit volatile because of the structured portfolios. I think the trends, though, for ABA remained very positive at all levels, NIMs and volume.

[Doug Young, Diversified Financials and Insurance Analyst]

Okay. And then just a clarification, like the $26 million gain, that came through a noninterest income, I assume. And that's an after-tax -- $26 million is an after-tax number?

[Jean Dagenais, Senior Vice]

$26 million is pretax. It is in the other income of Credigy, to which you have some variable compensation of about $4 million, so for a net of $22 million. And net of tax, it's $18 million or $0.05 a share.

[Doug Young, Diversified Financials and Insurance Analyst]

Okay. And then just last, Bill, performing loan PCL was $6 million. I assume the FLI improved. I didn't have a chance to go through it all, but the FLI would have improved, the outlook seems to have improved. Can you talk about what the offsets were? And was this more of a weighting towards your pessimistic scenario? Like what offsets the amount that would have otherwise been released?And Louis, is the goal -- I think, last quarter, you said the goal was not to necessarily release them. You'd want to grow into them. Is that still the kind of viewpoint?

[William Bonnell]

Thanks, Doug. I'll start off. So in terms of offsets, certainly, loan growth is one that generates the performing PCLs. You'll notice that in the appendix and the disclosures on our macro scenarios, the baseline did improve somewhat in a few other factors. But the pessimistic -- the shape of the pessimistic was a little different. You'll see that on the slide at the back of the deck, and that had an impact as well on the performing PCLs.

[Louis Vachon, President, CEO & Director]

Yes. I mean we're -- I think you saw, we had a nice increase in risk-weighted assets. I think that's what we were hoping for, and that's somewhat, I think, indicating for. But as Bill indicated, the situation -- the economic situation, if it continues to improve and vaccination accelerates, I think we'll be facing the possibility of releases faster than we thought.

[William Bonnell]

And we'll review it each quarter.

[Louis Vachon, President, CEO & Director]

Yes.

[Operator]

Following question is from Scott Chan from Canaccord Genuity.

[Scott Chan]

If I go to Slide 19 on Wealth Management, the thing that jumped out to me was transactions and others on the revenue line, up 35% quarter-over-quarter. Maybe just if you could help me -- or maybe if you can just elaborate on the sequential increase? And if there's anything in that other, that kind of drove it?

[Louis Vachon, President, CEO & Director]

Ghislain will answer that question.

[Ghislain Parent, CFO & Executive VP of Finance]

Thank you to ask a question about Wealth Management. The transaction increase comes 50-50 from Direct Brokerage as well as NBIN. So there is an element to it that is related to the frenzy that everybody saw. But there's also an element coming from portfolio managers at NBIN. So that's why we like the profile. We like the profile that we have. And especially at NBDB, Direct Brokerage, it's not only coming from GameStop trading. It's -- we've gained a number of accounts. We're #2 according to the Investor Economics for a number of transaction, revenue growth as well as new accounts. So it's pretty solid.Now in terms of other revenues, a lot of it is FX revenues. And I would say that the only change in investor behavior that we've seen is a big increase in the number of U.S. shares that are transacted versus Canadian shares, and that brings FX revenue.

[Scott Chan]

Got it. And maybe just lastly on International's ABA. In terms of the loan book, up 7% quarter-over-quarter, 36% year-over-year during the pandemic. At what point do we see this loan book kind of mature? Or is there a runway for several years where you can kind of post these exceptional kind of growth rates on this book?

[Louis Vachon, President, CEO & Director]

Scott, it's Louis. I think we've posted these sorts of numbers now for 5 years, at least. I think there's still some runway. I think our market share is obviously growing, but it's still -- I think we see room for growth there. We continue to gain market share in both deposits and loans. And what's encouraging is that there's been no lockdown in Cambodia. So it's difficult to get in. You have to be -- it's the Australian rules. So you have to be 2 weeks in an hotel if you're coming from outside. So the tourist industry is extremely slow.But the other parts of the economy, manufacturing, construction and agriculture are doing extremely well. So what's encouraging is that 3 of the 4 engines are running, and then at some point, tourism will come back. So from a strict macroeconomic standpoint, these -- that performance was not done with the Cambodian economy at peak performance. It's really done at a 3/4 performance. So that's why I think there's still some runway here for at least a couple of years.

[Operator]

Following question is from Mario Mendonca from TD Securities.

[Mario Mendonca, MD & Research Analyst]

This question might be appropriate for Jean Dagenais. Jean, you referred to the shift into wealth and Financial Markets as an explanation for why the margin would have been strong. And I, too, observed that the all bank margin was very strong sequentially. Was there any change in the balance sheet, the structure of the balance sheet, either duration or risk, that might account for the abrupt improvement in the all bank margin?

[Jean Dagenais, Senior Vice]

The only big change in the balance sheet is the increase in liquidity at Central Bank. So this affects treasury, doesn't affect the business line. Other than that, there was no other shift for the business lines.

[Mario Mendonca, MD & Research Analyst]

But that wouldn't have contributed to a higher margin, would it?

[Jean Dagenais, Senior Vice]

No. No. The increase in liquidity is almost neutral.

[Louis Vachon, President, CEO & Director]

Okay. So Mario, this is Louis. I don't -- we're looking around the table here. No, I don't think there was anything special on balance sheet or anything else that occurred. It was just, as you saw, I think, good volume growth in all business lines and on both sides of the balance sheet. I think that's just it. There was nothing unusual in the LM or anything else like that.

[Mario Mendonca, MD & Research Analyst]

Yes. That's helpful. I -- when I disaggregate the margin for National, and I see how well it performed relative to your peers, it sounds -- it look -- it does look to me like the business in Cambodia and Credigy, and I guess, wealth as well, those are making a meaningful contribution to National's better margin performance. So I wanted to just sort of square the circle and make sure I wasn't missing something on the balance sheet.If I could just go, Louis, more of a philosophical question. You've been around a while. You've seen a lot of cycles. And I think you'd agree that no one would have predicted that National Bank would put up over $2 a share, a record quarter, 13 months into a pandemic or 12 months into a pandemic. So it's clear that, at least from my perspective, that central banks and governments around the world have, maybe not intentionally, but they've created a very, very good environment for banks, with extremely low credit losses and a great opportunity to make money in Financial Markets.So at some point, central banks aren't going to be there and central governments aren't going to be there to create this perfect environment for banks and the punch bowl gets taken away. In your many years running Financial Markets and running this bank, what happens in that environment? And how is National -- are you preparing for the day that the punch bowl gets taken away? Because it seems, at least, from my seat, that, that's what we've seen. We've seen central governments and the central banks create a perfect environment for banks to make money.

[Louis Vachon, President, CEO & Director]

There's certainly been very -- I know you were around in '07 and '08. So on a comparative basis, Mario, this was even larger in terms of intervention by governments, both at the fiscal and monetary side. So yes, so there was massive intervention.Now I think it's a good question, though, on the punch bowls. But the fact is, I think, before we get there, I think we need to get back to full employment. And I think it's not just GDP recoveries that the G7 countries are looking at, they're looking at full recovery in terms of the job market.So I think before we get to removing the punch bowl in terms of the fiscal stimulus -- monetary and fiscal stimulus, I think we will have a nice period of economic rebound, which I think we will benefit from. And as I said earlier, I was mentioning a scenario, maybe if it's more of a wishful thinking, but we have both positive financial activity and economic activity taking on the same place.Now removal of having enough scars on my body, on my face, to have gone through periods where central banks have removed liquidity, '94 was one, 2000 was another one, and a little bit in '15 or '16, I think what happens in that particular positioning is you need to be very good at managing volatility in Financial Markets, and especially, now if there's any kind of whiff of inflation, but again, I think it's probably a couple of years down the road at the earliest, I would think.But once that occur, I think volatility is going to be -- could be quite high. And I think so far, and I'm knocking on wood, and we're all looking on wood, as a team, I think we've shown that we're pretty damn good at managing volatility in Financial Markets. So that's why capital markets remains, I think, an -- within a universal banking business model, a very attractive add-on because of the correlation versus the other business lines. Am I making sense here, Mario?

[Mario Mendonca, MD & Research Analyst]

Yes. And if I could, just one final thing. When the music stopped in 2008, 2009, several banks, mostly in the U.S., were exposed pretty in stark terms. We saw the banks that made a lot of mistakes. Are there any excesses that you can see being built up in the system today that will be exposed down the road?

[Louis Vachon, President, CEO & Director]

Not now. And I think the financial system, Mario, is quite different, particularly the regulated part of the financial system, namely the banks are a quite different beast than they were in 2006. So I think there are a lot of new players, a lot of new structures in the markets. And I don't see right now major weaknesses within the regulatory part of the system.For the rest, I did allude in my opening remarks that we are seeing pockets of irrational exuberance in the markets. You can figure out which one are those. And I think given the level of stimulus, they're likely to be more. And that's why I think risk management remains -- a strong risk management culture is not a nice to have even in a period of strong economic recovery. It is especially important in the period of strong economic recovery because that's usually, as you know, that's where the big mistakes are being made. So that's why we're trying to be balanced between our -- what we're generating in terms of revenues but being fully cognizant that we have to be very, very prudent in terms of risk management.

[Operator]

A following question is from Lemar Persaud from Cormark Securities.

[Lemar Persaud, Research Analyst]

I just want to circle back on earnings in Wealth Management. It sounds like there's some transaction volume that may not repeat in well. So the earnings power of that segment on a run rate basis has been closer to the, let's say, $130 million a quarter range. Because when I look back at your sub pack, it looks like there was quite stable growth at that level of earnings. Or should we be thinking about it as more of the $160 million as being a representative run rate as well?

[Ghislain Parent, CFO & Executive VP of Finance]

Well, thank you. The -- look, it's a tough question. In our revenue mix, this is the portion that is the most volatile. But recently, we're experiencing really, really strong numbers even in February. March last year was a record, and we're trending right about those levels, if not, higher these days. And it's coming from Direct Brokerage, as I said, but not only that, recently, it was between NBIN and Direct Brokerage. And now we're seeing new issues coming to full-service brokerage, which is something we have not seen in a long time. So all of this to say that so far, for the coming months, what you've seen in Q1 is what we're seeing and what the trend continues.

[Lemar Persaud, Research Analyst]

Okay. So there's no like onetime, like maybe a large performance fee or anything in there that's like onetime in nature?

[Ghislain Parent, CFO & Executive VP of Finance]

Absolutely, not. We have no performance fees at all in all of our revenues. So that's not a question. As I said, the only thing that is a little bit different is the behavior of the investors as they trade more on U.S. stocks than before. So more FX revenue could disappear, but it doesn't explain the bulk of our results for sure.

[Operator]

A following question is from Gabriel Dechaine from the National Bank.

[Gabriel Dechaine, Analyst]

A question for Louis to start. You'd mentioned in your opening remarks about, once the restrictions are lifted, you want to get back to raising dividends and buying back stock. I assume you mean your intent to do both? And if that's the case, are we looking at 11% still as a minimum target level for core Tier 1?

[Louis Vachon, President, CEO & Director]

Yes. I think we would love to -- if it was a confusion, I think we should be in a position, hopefully, to do both, probably on increasing dividend, I would say, because if you do a quick math, I think you'll see that we're at the risk of being below our 40% payout -- minimum payout ratio in terms of dividends for 2021 if there's no adjustments on -- or you don't adjust dividend upwards. We'll wait for the regulators to give the signal. But I think that would be one thing. And then, yes, I think 11%, 11.5%, I think, is a comfortable level post-pandemic. We'll see how that goes, but we'll see how things evolve.

[Gabriel Dechaine, Analyst]

Okay. And then my other question is to -- is for Laurent, also congrats on the new job. Great quarter in Financial Markets, but we're staring down a barrel of some really tough costs over the next 3 quarters. How does that impact, I guess, your outlook for pretax pre-provision profit growth, like where do you expect Financial Markets to end up vis-à-vis the mid- to high single-digit all bank target? And then in terms of -- I think you alluded to trading may be slowing down. Is that the offset going to be that solid pipeline of investment banking fees coming?

[Laurent Ferreira, Chief Transformation Officer, Executive VP & COO]

Thank you, Gabriel. So in the first quarter, what we've seen, lots of capital raise from our corporate clients. I mentioned before, elevated volumes, healthy vol in all asset classes. The other trend that we've seen is a significant rise in investor appetite for products. So that trend in retail and institutional. So I think it's fair to say the conditions right now for capital markets activities are very, very good.Now looking forward, Louis mentioned it earlier, we've made investments in our franchise, and they are bearing fruit. The -- we're well positioned, okay? So we're very comfortable there. At this point in time, we remain positive on our trading businesses. And we're seeing a very strong pipeline on M&A, financing activities from our clients. So I think if market conditions persist and they remain favorable, look, we're in a really good position to generate positive revenue growth versus 2020, which was a record year.

[Gabriel Dechaine, Analyst]

So maybe not a big dropoff as I might think anyway.

[Operator]

[Operator Instructions] Our next question is from Darko Mihelic from RBC Capital Markets.

[Darko Mihelic, MD & Equity Analyst]

I just have 2 questions. The first one is really simple. Forgetting credit card balances for a moment, I'm just curious if you can tell me, do you have more credit cards in circulation today than you did a year ago?

[Lucie Blanchet]

I missed part of the question. The number of active accounts? Yes, the number of active accounts is, I would say, stable compared to a year ago. I don't think the conditions have been favorable at this point to increase the number of active accounts. What we've done is work with our customer to stimulate spend where we could in some of the spending categories. But this is what we see right now.

[Darko Mihelic, MD & Equity Analyst]

Okay. That's helpful. So my second question is similar to Mario's question. I'm going to try it from a different angle though, Louis. And I'll direct you to Slide 29 in your presentation deck. Okay, so my question revolves around the deposit growth. And I've been watching banks for a long time. It's very rare in one year to have a deposit book that was slightly below your loan book to go suddenly significantly higher than your loan book. And when I look at this chart, it's basically $32 billion of deposits more year-over-year. And when I look at the shareholders' report, $27 billion of that $32 billion is no-fixed maturity.So I guess the question is, if we hit a real strong stride here in the economic recovery, it's totally possible in my mind that we could have deposits runoff pretty quickly, like just as fast as they run up, they could run back down. And don't misconstrue my question as one about interest rate risk or -- your liquidity coverage ratio is fine, that stable.But what I'm really thinking about is the impact on your business in terms of the margin in a situation where you have asset growth with deposits running off and any other sort of difficulties that might arise from that. So can you give me an idea of how you're preparing for a potential significant rundown of deposits? And what might be the impact if my sort of vision comes true?

[Louis Vachon, President, CEO & Director]

Thanks, Darko. Frankly, right now, I think we're more -- I think our biggest challenge is deploying the excess deposits that we have without doing anything stupid on the balance sheet, frankly. We're not making mistakes. We're not concerned with a runoff. Even if at some point, the deposit base should come down, and we certainly hope so, Darko, because I think that would be a signal that the economy is finally picking up and people are starting to travel and spend and invest again. And I think we have enough, given our universal banking model, I think we have enough other businesses that we would pick up the revenue from that investments, either in Wealth Management or in capital markets or in Commercial Banking or in something else.So I think -- a, I think in terms of funding and balance sheet, I don't expect it to be so abrupt that it's going to cause a problem in terms of funding or liquidity. And secondly, as I said, once that money, we can only hope that money gets deployed one day because that means that we're out of this weird situation we found ourselves in the last 12 months. And I think it's going to be done progressively. And again, I think it will generate revenue opportunities for us right across the franchise. So that's where we're at.For the rest, keep in mind that structurally, it's been a policy and a strategy of ours, and in fact, a big priority to decrease our funding coming from wholesale funding and increase the funding from core funding sources, core P&C clients. And so when you look at that trend over 5 years, it did certainly accelerate last year because of all the unusual circumstances. But also, I think it also reflects a multiyear strategy to reduce our dependency on wholesale funding. And I would certainly hope that, that would not be reversed in a post-pandemic world. Does that answer your question, Darko?

[Darko Mihelic, MD & Equity Analyst]

Yes. I mean, it helps. And as I said, I wasn't worried about the risk side of it. I'm just wondering about the -- obviously, you would have excess liquidity come down and you would be deploying some of that. But I just I can't picture an environment where your asset growth would accelerate as fast as your deposit growth would come off. So I'm just struggling with it a little bit. Every time I look at the balance sheets these days, it just -- it bothers my mind so much, especially the business and government deposits. I mean those should be very fluid and liquid in a recovery. And I got to think you're paying next to nothing for these deposits. So I mean I'll think through it more, Louis. Your answer is exactly as I thought it would be. I guess it's just...

[Stephane Achard]

Actually, Darko...

[Louis Vachon, President, CEO & Director]

Yes. Stephane, I just wanted to mention, actually, on the government side, we've actually let go of governmental deposits that were going up for bids and auctions that were at low margins because of these excess liquidities. So that's always one tap area we could tap back in if need be.

[Operator]

So we have no further questions registered at this time. I would now like to turn the meeting back over to Mr. Vachon.

[Louis Vachon, President, CEO & Director]

So thank you, everyone, and we'll talk to you for the Q2 results in 3 months. Thank you, again. Have a good day.

[Operator]

Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.